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Retirement Plan B: Don't Die

We're spending our kids' inheritance!

I get a chuckle every time I see that bumper sticker, but it's not for the reason you think.

I mean, sure, it's funny the first time you read it.

But over time, you begin to notice the same slogan on many cars. The first one I saw was, fittingly enough, on an RV as we hugged the Cumberland Gap's mountainous curves in Tennessee. I saw another on a Chrysler Sebring convertible, with gray hair flowing in the wind. Unfortunately, the last one I saw was on a beat-up car tied up in a rush-hour commute.

So I laugh, but it's a bittersweet chuckle. Some retirees are eating into their nest eggs, while others are begrudgingly shoving off to work again, because they can't get by on their pensions and Social Security checks.

You don't look a day over thrifty
The good news is that we're living longer. The bad news is, well, that we're living longer. As medical breakthroughs and healthier lifestyles expand our life expectancies, you simply can't count on hanging up your cleats the way your parents and grandparents did.

Because your retirement will last longer than you probably think, you really face just two choices:

  • Put off your retirement as long as you can.
  • Plan better for your retirement so your bumper sticker isn't sadly ironic.

You are certainly welcome to wing it ... if you did, you wouldn't be alone. However, before you begin pondering reverse mortgages or viaticals after your pockets run dry in retirement, you owe it to yourself to gain as big a lead as possible on the gravity of your greenbacks.

Three tips to make your money immortal
There are plenty of shortcomings that can erode your nest egg, but the biggest retirement killer has to be the inability to maximize your retirement savings.

I've got a few tips to help you get there.

1. Invest thematically

If retirees are living longer, cash in on the stocks that stand to benefit from prolonged periods of retirement. Here are a few worth researching further:

  • Almost Family (Nasdaq: AFAM  ) is a fast-growing provider of home-based health services.
  • Carnival (NYSE: CCL  ) is the country's leading cruise line. Cruising offers a convenient way to travel. As the pool of retirees grows, ships will be able to book more passengers during the seasonal lulls between younger family vacation breaks.
  • Life Partners (Nasdaq: LPHI  ) helps broker deals on life insurance settlements for terminally ill patients. It's a grim business, but one I believe will grow in popularity as cash-strapped seniors seek out capital infusions.
  • Thor Industries (NYSE: THO  ) is a leading RV maker, and one of the few that remains profitable. Don't just envy the retirees seeing the country on wheels. Profit from them.

2. Only trust the right dividends

When General Electric (NYSE: GE  ) recently slashed its dividend, it didn't take anyone by surprise. It may have been the first time that the conglomerate lowered its payout since 1938, but investors saw it coming. The stock had been beaten down so low in the months leading to the reduction that the ridiculously high yield really was too good to be true.

If you want to invest for income, only consider companies that have the financial outlook to cover their distributions. The payout ratio is your friend here. Is the company paying comfortably less in dividends than it is taking in through earnings? Check the payouts against earnings expectations, too.

It also doesn't hurt if the stock has a healthy history of hiking its dividend, like these long-haul achievers:

  • Coca-Cola (NYSE: KO  ) has bumped up its dividend in 47 consecutive years.
  • 3M (NYSE: MMM  ) has delivered 51 years of higher quarterly disbursements.

3. Think now, play later

Retirement planning isn't a full-time job, but a full-time job is what many who fail to plan may face. Do you know how much you'll need for a comfortable retirement? Have you lined up your future income and expenses to see if you're sitting pretty or spooning down cat food? You're not alone if you're shaking your head. Last year's 18th annual Retirement Confidence Survey indicated that less than half of American workers have taken the time to make basic retirement calculations.

My longtime friend and colleague Robert Brokamp runs an excellent service called Motley Fool Rule Your Retirement. Every month, he covers timely issues like tax planning and retirement account trends. He also runs model portfolios to help retirees -- and eventual retirees -- achieve ideal asset-allocation strategies. If you need help taking control of your future, I encourage you to try the service free of charge for the next 30 days -- just click here to learn more.

So why wait until it's too late? Seize control of your future by taking the wheel while you still can. The last thing you want to see is me in your rearview mirror, shaking my head at your bumper sticker.

Longtime Fool contributor Rick Munarriz would rather have a bumper sticker that reads "We're INVESTING our kids' inheritance!" He does not own shares in any of the stocks in this story. 3M and Coca-Cola are Motley Fool Inside Value recommendations. The Fool has a disclosure policy


Read/Post Comments (5) | Recommend This Article (13)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 11, 2009, at 3:18 PM, pondee619 wrote:

    " Only trust the right dividends

    When General Electric (NYSE: GE) recently slashed its dividend, it didn't take anyone by surprise"

    WHEN DID THE FOOL SHARE THIS INFORMATION THAT GE WOULD CUT IT'S DIVIDEND.

    Let's review GE articles for the past year or so:

    http://www.fool.com/investing/dividends-income/2007/12/31/be...

    December 31, 2007

    ;Consider, for example, large-cap stocks. In selecting these, some investors look for established leaders in their industry, companies that make the rules and force others to follow suit. Others seek steady income through ever-increasing dividends. Still others search out innovative businesses that jump on the latest trends and find opportunities for new growth.

    A great large-cap stock puts all these factors together into a single package. One example is General Electric"

    "it's hard to do better than GE. The company has paid dividends for more than a century. It has raised its dividend every year since 1975"

    "Its AAA credit rating is symbolic of GE's financial strength, and with nearly $20 billion in cash and short-term investments, GE will likely continue to take advantage of the credit crunch and its impact on less secure competitors"

    December 2007

    http://www.fool.com/investing/general/2008/12/16/dont-sell-t...

    "Don't Sell This Stock. Ever.

    By Nick Kapur

    December 16, 2008"

    "If we can identify a few businesses that investors should have never sold, we can work backward to extract a few salient characteristics and then use them in our search for the next never-sell investment."

    "Case No. 3: General Electric (NYSE: GE)

    Return, 1962-present (including dividends): 8,821%

    Lesson: Agility

    Not all companies need to innovate to be great, but the vast majority need to be able to read the market, react, and be ahead of long-term trends. GE definitely has those things going for it; I'd venture to say that McDonald's (NYSE: MCD) displays a similar ability to adapt. Let's invest with companies that can zig and zag, when others have cement feet."

    http://www.fool.com/investing/dividends-income/2008/12/24/th...

    "The Easiest Way to Double Your Returns

    By Dave Mock

    December 24, 2008"

    "But reinvesting that annual dividend could more than double those returns. With dividends reinvested in the example above, your total after a quarter-century would exceed $140,000.

    The Foolish takeaway

    Eager to turn this example into reality? There are plenty of fundamentally strong public companies paying consistent dividends that significantly boost returns over time. Consider these companies that combine an attractive yield and long-term return:

    Company

    Annualized

    25-Year Return*

    Current Yield

    3M (NYSE: MMM)

    10.3%

    3.5%

    Kimberly-Clark (NYSE: KMB)

    15.4%**

    4.5%

    General Electric (NYSE: GE)

    10.7%

    7.5%"

    http://www.fool.com/investing/dividends-income/2008/12/16/go...

    "Good Stocks to Buy Now

    By Tim Hanson

    December 16, 2008"

    "And the rest of the S&P's market-beaters are a Who's Who of dividend growers:

    Company

    Annual Return (1957-2003)*

    Current Yield

    Altria

    19.8%

    8.3%

    Pitney Bowes (NYSE: PBI)

    12.7%

    5.9%

    Kimberly-Clark (NYSE: KMB)

    12.7%

    4.5%

    Archer Daniels Midland (NYSE: ADM)

    12.6%

    2%

    Boeing (NYSE: BA)

    12.3%

    4.1%

    General Electric (NYSE: GE)

    12.2%

    7.2%"

    http://www.fool.com/investing/general/2009/01/02/value-growt...

    "Value? Growth? Both!

    By Julie Clarenbach

    January 2, 2009"

    "Take "technology, media, and financial services company" General Electric (NYSE: GE) as an example. Where would it fit on this list? It has a market cap of $170 billion, Morningstar considers it a value stock, it currently yields 7.9%, and while it's based in Connecticut, half of its revenue comes from outside the United States"

    http://www.fool.com/investing/general/2009/03/04/stocks-the-...

    "Stocks the Rich Executives Are Buying

    By Tim Beyers

    March 4, 2009"

    "The week's buying

    So which rich executives are buying now? Have a look, courtesy of our friends at Form 4 Oracle:

    Company

    Closing Price 3/3/09

    Total Value Purchased

    52-Week Change

    Coach (NYSE: COH)

    $13.01

    $876,200

    (57.7%)

    General Electric (NYSE: GE)

    $7.01

    $1,909,000

    (77.4%)"

    http://www.fool.com/retirement/general/2009/03/05/its-time-t...

    "It's Time to Sell and Walk Away

    By John Rosevear (TMF Marlowe)

    March 5, 2009"

    (MARCH 5, 2009. ) "and General Electric (NYSE: GE) is confronting some mighty problems of its own."

    http://www.fool.com/investing/dividends-income/2009/03/06/ar...

    "Are GE Shares Finally a Buy?

    By Alex Dumortier, CFA

    March 6, 2009 "

    "The bull argument"

    "The bear argument"

    March 2009. Just last week. And then, the day after, let's debate if GE is NOW a buy.

  • Report this Comment On March 11, 2009, at 3:37 PM, Madoffjr wrote:

    How is working longer even an option, when employers discriminate against seniors (for health coverage concerns)?

    I plan to either retire offshore, or give up citizenship, and live on a residential cruiseline.

    http://www.offshoresimple.com/resellers/affiliate/affiliate....

  • Report this Comment On March 11, 2009, at 3:43 PM, mikecart1 wrote:

    This is one of the worst articles I have ever read. Nothing personal but your stock choices all are pretty poor. I don't know what you are talking about GE's dividend not taking anyone by surprised. It surprised everyone. The CEO said the month before that the dividend was safe.

    Overall, this article is just bad.

  • Report this Comment On March 11, 2009, at 4:23 PM, TMFBreakerRick wrote:

    The GE cut did NOT surprise everyone, though I may have stretched things by suggesting that everyone saw it coming. I did, at least. I wrote about it last month:

    http://www.fool.com/investing/high-growth/2009/02/23/avoid-t...

    My last paragraph on GE:

    "Yes, the plunging share price and the company's tenacity in keeping its dividend intact give GE a deliciously tempting yield right now, but I can't be the only one expecting this to be the next major conglomerate to slash its payout."

    GE cut its dividend four days later.

    And it wasn't just me. Alex also doubted the ability for GE to keep its dividend two weeks earlier after Dow Chemical went against its intention to maintain its payout:

    http://www.fool.com/investing/dividends-income/2009/02/13/mo...

    His closing paragraph there:

    "Dividend cuts can strike at any time

    Dividend investors need to carefully validate any executive's promises to maintain a company's dividend right now. CEOs can be fickle creatures, particularly once they paint themselves into a corner trying to avoid any of several unpalatable options. Will General Electric's (NYSE: GE) Jeffrey Immelt be the next corporate chieftain to ask for a dish of crow?"

  • Report this Comment On March 11, 2009, at 6:05 PM, texam wrote:

    Life Partners is a fantastic company and the stock should really have some nice gains this year. They have dropped recently from some predatory short sellers and Mad Dummy JIm Cramer. Please check out the company. It is not a viatical company. Viaticals do not even represent 1% of their business.

    They are in the Senior LIfe Settlements. Normally people over 78 years old that are looking to cash out their life insurance. The sellers are typically getting 2X the amount they would from their insurance agent.

    No wonder LIfe Partners is doing so well. Life Partners is ran very ethically and morally. I have been down to Waco and had investor presentations with the CEO and President no less than 7 times.

    Please join me and see for yourself. Motley knows it is a good stock. But please let the world know what we actually do!!!

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Rick Munarriz
TMFBreakerRick

Rick has been writing for Motley Fool since 1995 where he's a Consumer and Tech Stocks Specialist. Yes, that's a long time. He's been an analyst for Motley Fool Rule Breakers and a portfolio lead analyst for Motley Fool Supernova since each newsletter service's inception. He earned his BBA and MBA from the University of Miami, and he now lives a block from his alma mater.

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